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Net Worth – Explained

Net Worth: The Most Important Number in Your Financial Life

You no longer have to wake up early to go into work and clock the hours at your standard 9 to 5 job. All you have to do have a net worth equal to 20 times your annual household income. Great! So how do we achieve this? Let’s start by looking at the basics of net worth.

Net worth is defined as all assets less all liabilities. The table below outlines common examples of assets and liabilities.

Assets

–

Liabilities

=

Net Worth

Checking Account

–

Credit Cards

=

Net Worth

Savings Account

Medical Bills

Investments (401k, IRA)

Student Loans

Real Estate

Mortgage

Vehicles

The sum of all assets minus the sum of all liabilities results in your net worth.

The following table provides an example:

Assets

–

Liabilities

=

Net Worth

$5,000

Checking

–

$1,000

Credit Cards

=

$110,000

$15,000

Savings

$1,000

Medical Bills

$75,000

Investments

$38,000

Student Loans

$200,000

Real Estate

$175,000

Mortgage

$30,000

Vehicles

In this example, the assets total to $325,000 and the liabilities total to $215,000. This results in a net worth of $110,000.

Spend some time to calculate and understand how it impacts your personal situation. It is the single most important number in your financial life.

Check out the Assets and Liabilities pages to learn more about how these items impact your net worth.